Money Held by the State Can’t be Given to a Fraud

Fraudster Cannot Obtain Cash Under the California Unclaimed Property Law

Dec 07, 2021

BACKGROUND

Marisa Schermbeck Nelson worked as a personal assistant to Doctor Munir Uwaydah from 2000 to June 2010. Uwaydah owned and controlled several companies that were held in other persons’ names to hide his ownership and control from creditors, insurance investigators, and government agencies. During Nelson’s employment with Uwaydah, Uwaydah directed her to put her name as owner, officer, or manager of various corporations or limited liability companies even though he owned and solely controlled the operation of those entities.

Uwaydah owned Golden State yet directed Nelson to put her name as Golden State’s owner. Nelson also was designated as the owner of a bank account associated with Golden State. At Uwaydah’s direction and until her employment with Uwaydah ended in June 2010, Nelson moved money in and out of the Golden State bank account.

On March 16, 2017, the Los Angeles County District Attorney filed a complaint against Nelson and others for, among other crimes, conspiring to commit insurance fraud in violation of Penal Code sections 182, subdivision (a)(1) and 550, subdivision (a)(6). The complaint alleged the insurance fraud was committed between November 15, 2004, and February 20, 2015, and was based, in part, on the operation of Golden State. On July 26, 2017, Nelson pleaded guilty to that charge as stated in a third amended felony complaint.

Nelson testified that Uwaydah, who “was the true owner of Golden State . . . created a list of prescription medications and insisted that each patient seen at Frontline [a medical clinic also controlled by Uwaydah] be prescribed all medications on the list or at least a certain dollar amount . . . . The billing reflected that each patient was essentially prescribed the same medication.” She added that “[p]rescriptions would often be returned to the clinic or pharmacy and these medications would be relabeled with different patient names and the insurance company would be re-billed for the same medication. Nelson also testified that Golden State operated under a fraudulent scheme from its founding to her departure from Uwaydah’s employment in June 2010.

On January 17, 2019, a Criminal Grand Jury of Riverside County indicted Uwaydah, Hunt, and others for, among other crimes, conspiring to knowingly make false or fraudulent claims for payment of health care benefits in violation of Penal Code sections 182, subdivision (a)(1) and 550, subdivision (a)(6).

The Insurance Claims

Between May 2015 and June 2016, the Controller received 37 submissions from insurance companies and other entities for insurance claim benefits, insurance claim reimbursements, and workers’ compensation benefits that identified Golden State as the owner of the submission proceeds.

On March 9, 2017, Hunt, on behalf of Golden State, filed claim forms with the Controller concerning the 37 submissions. From October 2017 to February 2018, Zachary Peccianti, the Controller’s Bureau Chief, communicated with Hunt and Steven Gardner, Golden State’s attorney, concerning documents necessary to “complete the claim.

On August 30, 2018, Golden State filed its complaint against the Controller to recover its claimed money under the UPL. It moved for summary judgment. The trial court granted the motion and, on August 3, 2019, entered judgment for Golden State in the amount of $121,989.13.

DISCUSSION

The UPL governs the state’s handling and disposition, generally through the Controller, of property such as bank accounts and securities, held by entities such as banks, brokerage firms, and insurance companies, the owners of which have not acknowledged or claimed their interest in for several years, generally three. Such property by statute escheats (becomes the property of the state), nonpermanently, and the holder must transfer it to the controller. The UPL is not a permanent or “true” escheat statute. Instead, it gives the state custody and use of unclaimed property until such time as the owner claims it. Its dual objectives are to protect unknown owners by locating them and restoring their property to them and to give the state rather than the holders of unclaimed property the benefit of the use of it, most of which experience shows will never be claimed.

The trial court impliedly ruled that Golden State did not file its complaint within the time prescribed in section 1541, but expressly ruled that the statute of limitations was equitably tolled. The Controller contended that the court erred in applying equitable tolling because Golden State failed to provide the Controller with notice of its intent to litigate and failed to conduct itself reasonably and in good faith.

Golden State filed its complaint on August 30, 2018, over 270 days after March 9, 2017, and outside the statute of limitations. Thus, for Golden State to proceed with its time-barred claim, it had to satisfy the elements of equitable tolling.

Equitable tolling is a judge-made doctrine which operates independently of the literal wording of the Code of Civil Procedure to suspend or extend a statute of limitations as necessary to ensure fundamental practicality and fairness. Equitable tolling has three elements: timely notice, and lack of prejudice, to the defendant, and reasonable and good faith conduct on the part of the plaintiff.

The Controller Demonstrated a Triable Issue of Material Fact Concerning Golden State’s Ownership of the Claimed Money

The Controller concedes that the insurance companies and other entities that delivered the contested money to the Controller listed Golden State as the owner of that money.

There is a triable issue of material fact as to whether Golden State was formed and operated as part of a criminal conspiracy to commit insurance fraud. Nelson, who was designated for some period as Golden State’s sole manager, pleaded guilty to conspiring to commit insurance fraud in connection with Golden State’s operation. Golden State operated under a fraudulent scheme from its founding to her departure from Uwaydah’s employment in June 2010.

This evidence supported an inference that a criminal conspiracy generated the insurance payments that were the submissions to the Controller. There was a question of material fact whether Golden State owned those check proceeds as the person who had legal right to the property before its escheat it would have had no legal right to money criminally obtained.

The judgment was reversed. The Controller was awarded its costs on appeal.

ZALMA OPINION

The UPL, logically, does not allow the state to pay to a fraud perpetrator funds the state controlled. The fraud was obvious and established. If anyone had a right to the funds were the insurers who were defrauded and paid claims that they did not owe. It should be axiomatic that neither a state agency nor a court should do anything to allow a fraud perpetrator to profit from his crime.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders.

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to training available at https://claimschool.com; articles at https://zalma.substack.com, the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at https://www.rumble.com/zalma ; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/ podcast now available at